England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER CIVIL JUSTICE CENTRE

		09/11/2012

Mr Justice Bean :

1. The Civil Procedure Rules provide that where a claim is made by or on behalf of a party who lacks capacity to conduct the proceedings (a child or protected party), no settlement of that claim shall be valid without the approval of the court. The issue in this case is whether the rule applies to a personal injury claim, settled at the door of the court, where at the time of the settlement the claimant was not known to lack capacity. Although the "compromise rule", as Lord Pearson described it in Dietz v Lennig Chemicals [1969] 1 AC 170, has existed for over 100 years, this question has never been authoritatively decided.

The history of this claim

2. Joanne Dunhill was injured in a traffic accident on 25^th June 1999. As she crossed the first half of a dual carriageway on foot she was struck by a motorcycle ridden by Sean Burgin. She suffered a fractured skull.
3. On 13^th May 2002 proceedings were issued on her behalf in the Barnsley County Court seeking damages limited to £50,000. There was a claim for general damages, and for special damages totalling £2,262.96. A defence was served denying liability and alleging contributory negligence. Directions were given on 3^rd September 2002 for liability to be tried before quantum.
4. The trial of liability was listed to take place before His Honour Judge Swanson at Sheffield on 7^th January 2003. Both parties were represented by counsel and solicitors and the claimant was also accompanied by a mental health advocate. A negotiated settlement was reached "in the corridor" in the sum of £12,500. This agreement was mentioned to the judge and a draft consent order handed in. The judge was not asked to approve the settlement, simply to order by consent that judgment be entered for the agreed sum and costs, with an order for detailed assessment of the claimant's Community Legal Service costs.
5. Some time later doubts emerged about the claimant's capacity. It was alleged that at the time of the compromise she had been a patient within the meaning of the Mental Health Act 1983. (The terminology has changed pursuant to the Mental Capacity Act 2005 from "patient" to "protected party", but the change does not affect the point in issue.) In December 2008 Ms Dunhill, this time acting by a litigation friend, issued proceedings in negligence against her counsel and solicitors who represented her on 7^th January 2003. That claim has been stayed and is not before me today.
6. On 11^th February 2009 the claimant, again by a litigation friend, issued an application in the original 2002 proceedings seeking a declaration that she did not have capacity at the time of the purported settlement of her claim on 7^th January 2003 and, on that basis, applying for the 2003 order to be set aside and directions given for the future conduct of the claim. The following month the case was transferred to the High Court.
7. On 19^th April 2010 a case management conference was held before Hickinbottom J. He gave a direction for the following issues to be tried as preliminary issues and heard consecutively by the same judge:-

(1) "Did the compromise and consent judgment made/entered on 7^th January 2003 in claim BY 020529 in the Barnsley County Court require court approval?"

(2) "If it did require approval, should it be approved now?"

The order recites that each of these wordings was proposed "without fettering the trial judge's ability to rephrase the preliminary issue." It also made provision for expert evidence and gave other directions with a view to a five day trial of the specified issues in early 2011. It appears that in the event only three days were allocated, namely 9^th – 11^th February 2011. By this time the potential issue of retrospective approval had fallen away. The claimant was contending that the true value of the claim on full liability exceeded £2 million; the defendant's figure, again on full liability, was approximately £800,000.

8. The defendant's skeleton argument dated 7^th February 2011 made detailed submissions on the issue of capacity. But it also raised the issue of "whether CPR Part 21 bites on cases like the present where a claimant issues proceedings in her own name, without a litigation friend, and reaches a compromise when the defendant does not know of the alleged incapacity". Mr James Rowley QC, who acted then as now for the defendant, submitted that if CPR Part 21 was inapplicable, there had been no requirement for the January 2003 compromise to be approved; and the settlement could therefore not be reopened.
9. I will call this argument the Imperial Loan point: it derives from the decision of the Court of Appeal in The Imperial Loan Company Ltd v Stone [1892] 1 QB 599 which, as the headnote records, held that:-

"Where a defendant in an action of contract sets up the defence that he was insane when the contract was made he must, in order to succeed in this defence, show that at the time of the contract his insanity was known to the plaintiff."

10. The skeleton argument was served two days before the trial of the preliminary issue on capacity was due to begin. At that stage, I am told, there was a potential dispute as to whether the defendants' representatives were on notice of Mrs Dunhill's possible incapacity. Since that could not be ascertained in the short time remaining before the trial, and since in any event the capacity issue seemed likely to (and did) occupy the three days allotted, the Imperial Loan point was not resolved at that hearing. Silber J held that the claimant did have capacity to enter into the compromise agreement embodied in the consent order of 7^th January 2003: [2011] EWHC 464 QB He therefore dismissed the claim for a declaration: and had that decision stood, the Imperial Loan issue would have been academic. It ceased to be academic when Silber J's decision was reversed on 3^rd April 2012 by the Court of Appeal (Ward and Lewison LJJ and Sir Mark Potter) [2012] EWCA Civ 397; [2012] PIQR P15. The court granted "a declaration that the claimant did not have capacity at the time of the purported settlement on 7 January 2003". The claim was referred back to the High Court for "case management". There is no mention in the judgments of the Imperial Loan argument. The defendant applied to the Supreme Court for permission to appeal, and at the time of the hearing before me that Court's decision was awaited.
11. On 11^th July 2012 Hamblen J gave directions for the trial of the remaining preliminary issue, which "without prejudice to the potential for later refinement by the Court" was formulated as follows:-

"The Court having declared that the Claimant lacked capacity to enter into the compromise agreement of 7^th January 2003 and the Defendant declining to ask this Court to approve the compromise retrospectively, does CPR Part 21.10 have any application where the Claimant brought a claim in contravention of CPR Part 21.2 so that in the eyes of the Defendant and the Court she appeared to be asserting that she was not under a disability?"

It is common ground that if the claimant fails on that issue the present claim will be at an end; but even if she succeeds the case will have to go for trial on liability and quantum.

Masterman-Lister v Brutton and Bailey v Warren

12. The issue before me has been considered, but not decided, in two cases in the Court of Appeal. In Masterman-Lister v Brutton and Co [2003] 1 WLR 1511 there had been a trial before Wright J of the issue of whether the plaintiff had lacked capacity at the time of compromising his personal injury claim. Wright J found that he had not, and that conclusion was upheld in the Court of Appeal in a detailed judgment of Kennedy LJ. Chadwick LJ agreed, but also said, with the concurrence of Potter LJ:-

"[63]Litigation is conducted in accordance with rules of court. It is no surprise, therefore, that the Rules of the Supreme Court (RSC) have made provision, since first promulgated in the First Schedule to the Supreme Court of Judicature Act 1875, for the conduct of actions by and against persons of unsound mind. Order XVIII of those rules provided that, in all cases where persons of unsound mind not so found by inquisition might have sued or been sued before the Supreme Court of Judicature Act 1873, they might sue in any action by their next friend 'in manner practised in the Court of Chancery' before the 1873 Act and might defend any action by their guardian ad litem. The practice in the Court of Chancery before 1873 was explained in the judgment of James LJ in Beall v Smith (1873) 9 Ch App 85 at 91–92:

'The law of the Court of Chancery undoubtedly is that in certain cases where there is a person of unsound mind, not so found by inquisition, and therefore incapable of invoking the protection of the Court, that protection may in proper cases, and if and so far as may be necessary and proper, be invoked on his behalf by any person as his next friend … It is not by reason of the incompetency, but notwithstanding the incompetency, that the Court of Chancery entertains the proceedings.'

[64] The RSC 1965 were made under the power conferred by s 99(1) of the Judicature Act 1925 (now found in s 84(1) and (2) of the Supreme Court Act 1981). The power is to regulate and prescribe practice and procedure. There is no reason to think that the rule-making body intended—or had power—to alter the substantive law as to the test of mental capacity applicable in relation to the pursuit or defence of legal proceedings; and, as I have said, no reason to think that that test was not the issue-specific test long recognised by the common law.

[65] RSC Ord 80, r 2(1) provided that a person under disability might not bring proceedings except by his next friend and might not defend proceedings except by his guardian ad litem. Subject to anything to be inferred from the use of the defined phrase 'person under disability', there is nothing in that sub-rule which alters the general law. The pursuit and defence of legal proceedings are juristic acts which can only be done by persons having the necessary mental capacity; and the court is concerned not only to protect its own process but to provide protection to both parties to litigation which comes before it. A defendant is entitled to expect that he will not be required to defend proceedings brought against him by a person of unsound mind acting without a next friend. Order 80, r 2(2) was facilitative: it provided that anything which in the ordinary conduct of the proceedings is required or authorised to be done by a party to proceedings shall or may, if the party is a person under a disability, be done by his next friend or guardian ad litem.

[66] RSC Ord 80, r 3(2) provided that (save in particular cases) an order appointing a person as next friend or guardian ad litem was not necessary. That, as it seems to me, is of some significance. The rule-making body plainly contemplated, and intended, that the question whether a party was required to act through a next friend or guardian ad litem (as the case might be) should, in the ordinary case, be determined by the party himself or by those caring for him; perhaps with the advice of a solicitor but without the need for inquiry by the court. Order 80, r 2(3) required that a next friend or guardian ad litem must act by a solicitor; and r 3(8)(i) required that, in such a case, the solicitor was to file a certificate certifying that he believed the party to be a patient, with his grounds of belief. But there was no requirement, as such, in the rules for the filing or consideration of medical evidence. If the rule were to work in practice, the test of mental capacity should be such that, in the ordinary case, the need for a next friend or guardian ad litem should be readily recognised by an experienced solicitor.

[67] RSC Ord 80, r 10(1) provided that, where in any proceedings money was claimed by a person under disability, no settlement or compromise of the claim should be valid without the approval of the court. That requirement supplements the general law as to bargains with persons of unsound mind—as explained in Imperial Loan Co v Stone [1892] 1 QB 599 and Hart v O'Connor [1985] 2 All ER 880, [1985] AC 1000. Absent that rule, a defendant sued by a person whom he knew to be of unsound mind—because, for example, the claimant was an adult acting by a next friend—could not safely compromise the claim by a payment. There was a risk that the compromise would be set aside. In that context, the rule may be seen as facilitative; it enables a binding compromise to be made. It is also, when read in conjunction with Ord 80, r 12, protective of the claimant's interests—in that the court is concerned both to approve the compromise and to give directions as to how the money paid under the compromise shall be dealt with.

[68] RSC Ord 80, rr 10 and 12 must be read in the context of r 2. The hypothesis underlying rr 10 and 12, as it seems to me, is that the claimant who is under a disability will bring his claim by a next friend, as r 2 requires; so that the defendant, and the court, will be on notice that rr 10 and 12 are engaged. To my mind it is not self-evident that rr 10 and 12 have any application where the claimant brings a claim in contravention of r 2—so that, in the eyes of the defendant and the court, he is asserting that he is not under a disability. If rr 10 and 12 were intended to apply in such a case (which I doubt) then it would be open to question whether the rule making body had power to change the substantive law expounded in Imperial Loan Co v Stone and Hart v O'Connor. The question does not arise on this appeal; and will not arise in these proceedings if (as I would hold) the appeal should be dismissed. It is unnecessary to decide it. But it may well be that an important assumption which underlies the present appeal—that, if the claimant were under disability in September 1987, the compromise into which he entered must be set aside—would prove, on examination, to be ill-founded."

13. It appears to me that the issue was first raised by Chadwick LJ on appeal rather than by the defendants at first instance. If it had been raised before Wright J, it would surely have been appropriate for him to be asked to decide it before embarking on what was described as a "lengthy" trial of the factual issue of capacity, involving the evidence of numerous expert witnesses, which would have been pointless if the Imperial Loan point were decided in the defendants' favour.
14. The same issue arose in Bailey v Warren [2005] PIQR P15. The claimant had been injured in a road traffic accident in 1998 and begun proceedings the same year. In November 2000 he agreed to settle liability on a 50:50 basis. The judgment recording this was not entered until December 2001. Holland J found that in November 2000 the claimant was not a patient for the purposes of agreeing a 50:50 apportionment of liability, though by December 2001 he was a patient and remained so at the trial. Since the critical date was November 2000 when the agreement was reached, the judgment could not be reopened and was retrospectively approved. The Imperial Loan point is not referred to in Holland J's judgment. Again, it may be that it was not raised at first instance.
15. An appeal by the claimant to the Court of Appeal was dismissed: [2006] EWCA Civ 51. The leading judgment upholding Holland J on the facts and on the test which he applied was given by Hallett LJ. At paragraph 102 she added:-

"Finally, in case my silence should hereafter be taken as assent to the proposition advanced by Mr Ullstein [for the claimant] on the effect of CPR 21 in cases of compromises made by people later found to have a mental disability, I should indicate I share the concerns expressed by Chadwick LJ expressed in Masterman-Lister at paras 67-68 at the assertion that procedural rules have abolished, as it were, by a side wind, the well established general principle of contract law that a mentally disordered individual seeking to set aside a contract has to prove knowledge of his incapacity on the part of the other contracting party. The decision in Dietz may well provide the answer, but for my part I would wish to hear far more detailed argument specifically on this topic before coming to any final conclusion. It is not a matter which, on my findings, would fall for decision by this court and I, therefore, follow Chadwick LJ's example in Masterman-Lister and say no more."

16. Arden LJ, on the other hand, after referring to paragraph 68 of Chadwick LJ's judgment in Masterman-Lister case, said:-

"[130] It is not suggested that the Respondent or his insurers knew or ought to have known that Mr Bailey was a patient at November 2000 if that is what he then was. If a compromise made by an individual or on his behalf at a time when he was a patient, but was not known to be a patient, is valid and binding on him, then, subject to the power of the court to approve the compromise, the appeal in this case must be dismissed. There would be no purpose in a retrial of the issue of capacity. The question of the effect of the compromise, which is raised by the Respondent's notice, has thus on my approach to be decided on this appeal.

[131] There are two cases cited by Chadwick LJ but neither of them concerns the compromise of a claim which would fall to be pursued by court proceedings. They concerned a promissory note in the Stone case and a contract for the sale of land in the Hart case. They are not therefore authority on the question whether a compromise of a claim is also binding unless the other party knew of the patient's lack of capacity.

[132] Our attention has however been drawn to two cases which were not cited in the Masterman-Lister case, namely Drinkall v Whitwood and Dietz v Lennig Chemicals Ltd [1969] 1 AC 170. In the latter case, a widow made a compromise on her claim and that of her infant child under the Fatal Accidents Acts arising out of the death of her husband. The other party sought to repudiate it before the court had approved it on behalf of the child. The power of the court to approve the compromise was then contained in Ord 80 of the Rules of the Supreme Court. The House of Lords held (so far as material) that the compromise was of no effect before the approval of the court had been obtained and (per Lord Pearson, Lord Pearce and Lord Wilberforce) that it made no difference whether the agreement was expressed to be subject to the approval of the court. The House rejected the argument that the relevant rule was ultra vires. In the Drinkall case this court applied this decision to a compromise made of part of a claim belonging to an infant before any proceedings were commenced.

[133] From these authorities it follows that a compromise by a patient which has not been approved by the court is invalid unless it is approved by the court. The question which then arises is whether this conclusion is displaced where it was not known at the time of the compromise that the person in question was a patient. The answer to this question must depend on the interpretation of the CPR. As I see it, there is nothing in the CPR to suggest that this conclusion is to be displaced in those circumstances. Indeed, this would be contrary to the basis on which the Dietz case proceeds, namely that there is no binding contract at all until the court has given its approval.

[134] I therefore conclude that a compromise made by an individual who is subsequently proved to have been a patient at the time of the compromise is of no binding effect until the approval of the court is obtained."

17. Ward LJ said:-

"The Legal Effect Of The Agreement Compromising Liability At 50/50

[155] If [the claimant] was of sound mind at that time then of course the agreement was valid. But, assuming for this purpose that the claimant lacked the mental capacity to enter into the agreement at that time, the agreement was still valid at common law. That is well established. Lord Esher MR explained the rule in Imperial Loan Co v Stone [1892] 1 QB 599, 601, 56 JP 436:

"I shall not try to go through the cases bearing on the subject; but what I am about to state appears to me to be the result of all the cases. When a person enters into a contract, and afterwards alleges that he was so insane at the time that he did not know what he was doing, and proves the allegation, the contract is as binding on him in every respect, whether it is executory or executed, as if he had been sane when he made it, unless he can prove further that the person with whom he contracted knew him to be so insane as not to be capable of understanding what he was about."

[156] That statement of the common law must, however, now be read in the light of CPR 21.10(1) providing that no settlement or compromise shall be valid insofar as it relates to the claim by the patient without the approval of the court. The meaning of and the effect to be given to this rule is crucial in this case.

[157] Several matters arise on the construction of that rule. The first is whether the settlement or compromise referred to in the rule can be a partial settlement……

[158] The second and important question is whether the settlement or compromise refers only to one which was made during the subsistence of the proceedings or whether it also includes a settlement or compromise of the claim (or part of it) entered into before the claim was actually made. The position was clearer under the former RSC, Ord 80 r 11 which was in the following terms:

"Where in any proceedings . . . money is claimed by or on behalf of a person under a disability, no settlement, compromise or payment and no acceptance of money paid into court, whenever entered into or made, shall so far as it relates to that person's claim be valid without the approval of the court." [Emphasis added by Ward LJ.]

[159] Despite the absence of those words, the present rule must, in my judgment, be construed in like manner. The words cover the wide construction so that when a claim is being made by a person who is now a patient and the settlement relates to that claim, then the compromise needs the court's approval. It would make no sense to restrict the ambit of the rule to post-commencement compromises. That could result in an agreement which is wholly disadvantageous to the patient being enforced against him. The overriding objective informs matters of construction and it would be manifestly unfair and unjust so restrictively to interpret it. Moreover, in Drinkall this court held in the case of a partial settlement made on behalf of a claimant who was a child that there was no valid and binding agreement until it had been approved by the court. Accordingly the agreement was held to be invalid and the defendant was entitled to withdraw his acceptance of the settlement of the apportionment of liability in the running-down case there before the court. Dietz v Lennig Chemicals Ltd [1969] 1 AC 170 was applied.

[160] Dietz also gives the answer to a third question of construction: what do the words "not valid" mean? In Dietz Lord Pearson said at p 90:

"In my view, 'not valid' means having no legal effect. The settlement . . . in which the infant was interested, was only a proposed settlement until the court approved it. Either party could lawfully have repudiated it at any time before the court approved it. It had no validity by virtue of the party's agreement in the August settlement."

[161] In para 68 of his judgment in Masterman-Lister Chadwick LJ speculated whether the rule making body had power to change the substantive law expounded in Imperial Loan Co Ltd. That point was not pursued before us. My impression is that the power to make rules to govern "the practice and procedure to be followed" in the courts is wide enough to include the power to protect a patient by disapplying an agreement he had made unless the court approves of it. The suggestion that the rules were ultra vires was rejected by Lord Pearson in Dietz. He explained at p 189: –

"When the claim of an infant or other person under a disability is before the court, the court needs, for the purposes of protecting his interests, full control over any settlement compromising his claim. In my view, the making and re-making of the Compromise Rule were valid exercises of the rule-making power under the Judicature Acts, which is now contained in section 99 of the Act of 1925,"

That opinion was not drawn to Chadwick LJ's attention. For my part I cannot ignore what their Lordships said. In my judgment the rules must be enforced according to their plain meaning. That means that however valid the agreement was at common law when it was made, now that the claimant is a patient and the compromise is caught by CPR 21.10, it must now be treated as invalid. I agree with Arden LJ in this respect."

18. Chadwick LJ made it clear in Masterman-Lister v Brutton that his observations on the Imperial Loan issue were obiter. (Had they formed part of the ratio, they would of course have been binding on the Court of Appeal in Bailey v Warren as well as on me). It is equally clear, especially from paragraph 161 of Ward LJ's judgment, that the Imperial Loan point was not fully argued in Bailey v Warren: and since the Court of Appeal in that case upheld the finding of Holland J that the claimant did have the capacity in November 2000 to agree a 50:50 settlement of liability, the Imperial Loan point was not essential to the outcome. So I accept Mr Rowley's submission that there is no binding authority which governs the issue argued before me. Nevertheless, at the level of this court it is highly persuasive when obiter dicta of the Court of Appeal in one case are fully considered, and disapproved, by the obiter dicta of a majority in a later case.

The Grosvenor Hotel point

19. Mr Rowley submitted that CPR Part 21, in particular Rule 21.10, should be interpreted so as not to conflict with Imperial Loan. He argues that the Civil Procedure Rule Committee ("CPRC") has no power to alter the common law and that the rules it makes should be interpreted on that basis. Alternatively, as what he rightly described as a last resort, I should declare the rule ultra vires.
20. It is obvious from first principles that the Civil Procedure Rules cannot amend the law contained in an Act of Parliament (Safeway Stores plc v Tate [2001] QB 1120). The proposition that the Rules also cannot amend the "ordinary law of the land" (for example, the common law of contract), as opposed to "regulating and prescribing the procedure and practice of the court", is supported by In re Grosvenor Hotel, London (No.2) [1965] Ch 1210 (see per Lord Denning MR at 1243C and Salmon LJ at 1262D), and Mr Marc Willems for the claimant did not dispute it. But, he said, it did not assist the defendant in this case.
21. The primary statute from which the CPRC derives its authority is the Civil Procedure Act 1997, which follows a line of statutes dating back to the 1870s and the creation of the old Supreme Court Rule Committee. Section 1(1) provides that "there are to be rules of court (to be called "Civil Procedure Rules") governing the practice and procedure to be followed in the civil courts. Schedule 1 provides by paragraph 1 that among the matters which Civil Procedure Rules may be made about are any matters which were governed by the former Rules of the Supreme Court or the former county court rules.
22. Paragraph 4 of Schedule 1 to the 1997 Act, on which Mr Rowley placed considerable emphasis, states that:

"Civil Procedure Rules may modify the rules of evidence as they apply to proceedings in any court within the scope of the rules".

Even paragraph 4 has its limits, as shown by the decision of Toulson J in General Mediterranean Holdings SA v Patel [1999] 3 All ER 673: he held that it did not enable the CPRC to make a rule (in connection with the wasted costs jurisdiction) which would invade legal professional privilege. More significantly, Mr Rowley points out that there is no corresponding provision in the 1997 Act permitting the CPRC to modify any other aspect of the common law.

23. Mr Willems accepts that Imperial Loan v Stone and Hart v O'Connor are still good law, but he distinguishes them. One involved a promissory note, the other a contract for the sale of land. Neither had anything to do with litigation. Rules about the compromise of litigation are part of the rules governing the conduct of litigation, and thus matters of "practice and procedure to be followed in the civil courts", rather than part of the general law of contract. The CPRC is therefore entitled, as its predecessor had been, to promulgate a rule of practice or procedure which conflicts with Imperial Loan.
24. Gibbon v Manchester City Council [2010] 1 WLR 2081, decided since Masterman-Lister v Brutton & Co and Bailey v Warren, supports Mr Willems' argument. The Court of Appeal held that CPR Part 36, dealing with offers of settlement, was a self-contained code to be read and understood according to its terms and without importing rules derived from the general law of offer and acceptance, save where that was clearly intended. Thus a Part 36 offer, even if rejected by the offeree, remains open for acceptance until and unless it is withdrawn by the offeror. At common law it would be otherwise. The compromise rule itself is likewise a modification of the common law of contract: but it was held nevertheless to be intra vires in Dietz v Lennig Chemicals, in the passage of Lord Pearson's speech cited by Ward LJ in Bailey v Warren and set out earlier in this judgment.
25. I accept Mr Willems' submission that when a claim is issued in the civil courts, the Civil Procedure Rules are so far as relevant impliedly incorporated into any agreement the parties reach to settle the dispute, especially if, as in this case, the settlement is embodied in a judgment of the court; and that the Rules thus incorporated take precedence over the general law of contract. If the interpretation of CPR Part 21 for which he contends is correct, it would therefore not violate the principle that the CPRC is confined (save for modifications to the law of evidence) to prescribing and regulating the practice and procedure of the courts.
26. On that basis I turn to considering whether his suggested interpretation is correct. I bear in mind, as Mr Rowley urged me to do, what Peter Gibson LJ said in Vinos v Marks and Spencer plc [2001] 3 All ER 784:

"The construction of the CPR, like the construction of any legislation, primary or delegated, requires the application of ordinary canons of construction, though the CPR, unlike their predecessors, spell out in Pt 1 the overriding objective of the new procedural code. The court must seek to give effect to that objective when it exercises any power given to it by the rules or interprets any rule. But the use in r 1.1(2) of the word 'seek' acknowledges that the court can only do what is possible. The language of the rule to be interpreted may be so clear and jussive that the court may not be able to give effect to what it may otherwise consider to be the just way of dealing with the case, though in that context it should not be forgotten that the principal mischiefs which the CPR were intended to counter were excessive costs and delays."

The proper interpretation of CPR 21

27. By CPR 21.2(1) a protected party must have a litigation friend to conduct proceedings on his behalf. CPR 21.3(4) states that any step taken before a protected party has a litigation friend (other than the issue of a claim and an application for the appointment of a litigation friend, which are dealt with earlier in rule 21.3) has no effect unless the court orders otherwise. CPR 21.10(1), the modern version of the Compromise Rule, provides so far as relevant that:

"Where a claim is made –

(a) by or on behalf of a …. protected party; or

(b) against a ……protected party,

no settlement, compromise or payment…..and no acceptance of money paid into court shall be valid, so far as it relates to the claim by, on behalf of or against the…. protected party, without the approval of the court." [As already noted, in 2003 the term "patient" was used instead of "protected party"].

28. It is significant that CPR 21.10 applies to claims made "by" as well as "on behalf of" a protected party; and that "protected party" is defined by CPR 21.1(2) as "a party, or an intended party, who lacks capacity to conduct the proceedings". In other words, a party who in fact lacks capacity to conduct the proceedings is protected (or, in 2003 terminology, was a patient) even though he or she has not been officially declared to be such and is not acting by a litigation friend. It should also be noted that the rule applies whether or not the party in question is legally represented.
29. In my judgment it is clear, as Ward and Arden LJJ held in Bailey v Warren, that CPR Part 21 applies to invalidate a consent judgment involving a protected party reached without the appointment of a litigation friend and the approval of the court, even where the individual's lack of capacity was unknown to anyone acting for either party at the time of the compromise.
30. I have reached this conclusion as a matter of statutory interpretation, but I should add my view that if one reaches the stage of policy considerations the balance strongly favours the same result. It is true to say that there is a public interest in certainty and finality in litigation; and that the setting aside of the compromise many years later is hard on Mr Burgin's insurers, who reasonably thought in January 2003 that the case was over. But there is also a public interest in the protection of vulnerable people who lack the mental capacity to conduct litigation. As it happens, Mrs Dunhill was represented in the original proceedings, and might have an alternative remedy against the solicitors and counsel who were then advising her. But, as Mr Rowley frankly accepted in the course of his powerful submissions, if Chadwick LJ's Imperial Loan point is right it must apply equally to unrepresented parties, of whom there are likely to be more in the future. It is not difficult to imagine the case of a claimant who is capable of signing and posting an acceptance form sent by a loss adjuster, but who (unknown to the defendant or the loss adjuster) is incapable of managing his affairs. It would be disturbing if the "compromise" reached by such a person could not be reopened.

Conclusion

31. The Court of Appeal has found in the present case that Mrs Dunhill lacked capacity to settle her claim in January 2003. For the reasons I have given the compromise was invalid; the judgment based on it must be set aside; and the substantive claim should proceed to a trial on the merits.

Permission to appeal

32. The above judgment was sent to counsel in draft on 12 October 2012. At their joint request I have delayed handing it down pending receipt by them of the decision of the Supreme Court on the defendant's application for permission to appeal against the Court of Appeal's decision of 3^rd April 2012 mentioned in paragraph 10 above. On 23^rd October 2012 the Supreme Court granted permission to appeal. The defendant, with the consent of the claimant, now asks me to grant a certificate under s 12 of the Administration of Justice Act 1969 to enable an application to be made to the Supreme Court for permission to bring a "leapfrog" appeal from my decision. I am satisfied that the conditions laid down by s 12(3)(a) are met. The point of law is one of general importance, it relates wholly or mainly to the construction of a statutory instrument, namely the CPR, and it was fully argued before me. I am also satisfied, as required by s 12(1)(b), that a sufficient case for a direct appeal to the Supreme Court has been made out, especially since that Court has already agreed to hear one appeal in this litigation. I therefore grant a certificate to that effect.
33. The defendant must pay the claimant's costs of the preliminary issue before me.